A national inquiry into Australian universities¡¯ finances could bring a ¡°clean slate¡± to their reporting obligations and help clarify whether mass retrenchments are necessary.

Policy consultant John Howard said universities¡¯ published accounts were a ¡°black box¡± that did not reveal enough useful detail about their financial circumstances, and distorted the picture with irrelevant and volatile line items.

He said the content of the accounts was dictated by standards focused on ¡°financial accounting¡±, designed to meet statutory reporting obligations, rather than the ¡°management accounting¡± administrators used for planning, budgeting and decision-making.

University accounts should include ¡°earnings before interest, tax, depreciation and amortisation¡± (EBITDA), a measure which ¡°tells us whether an institution¡¯s operations are viable¡±, he said. ¡°That¡¯s what corporates do all the time¡­and yet to many universities, it¡¯s a foreign concept.¡±

ÍøÆØÃÅ

Just five of Australia¡¯s 38 publicly funded universities reported EBITDA in their 2024 annual reports, and only one included it in its audited financial statements. Howard said universities¡¯ reporting of EBITDA should be mandated to ensure that it was clearly defined and consistently reported.

But this risked exacerbating universities¡¯ already overwhelming reporting requirements, he said. ¡°You almost need a clean slate. An inquiry into university finances [could] sort out what financial information we want the universities to report on, over and above¡­the statutory reporting requirements which don¡¯t tell us anything.¡±

ÍøÆØÃÅ

Major retrenchment drives at around a dozen institutions, most notably the Australian National University and University of Technology Sydney (UTS), have fuelled a broader discussion about whether universities are being run too much like businesses.

In the most recent development, UTS has told staff that it plans to close its School of International Studies and Education ¨C including all teacher preparation courses ¨C along with the School of Public Health, according to New South Wales MP Sarah Kaine. UTS declined to confirm the claim before the 17 September release of an ¡°academic change proposal¡±, which it described as ¡°the starting point for a genuine and robust consultation¡±.

Vice-chancellors say they have little choice about cutting staff numbers because their revenue does not cover their running costs, and any real prospect of boosting their earnings has been dashed by federal government limitations on international enrolments. The National Tertiary Education Union says administrators have exaggerated their financial problems and have not been sufficiently transparent with staff.

Howard said it was not clear whether universities had access to internal information that could determine whether the cuts were genuinely necessary. But their published accounts left observers with ¡°no idea¡±, partly because they included factors like investment income and depreciation, which respectively equated to 12 per cent and 7 per cent of universities¡¯ total revenue in 2023.

ÍøÆØÃÅ

Depreciation was significant enough to convert healthy operating surpluses into deficits on paper. ¡°Depreciation is recorded year after year as if it were an actual cash expense,¡± said Howard, who has served as pro vice-chancellor at the University of Canberra and partner at two major global professional services firms. ¡°It is not. Depreciation reduces reported earnings but¡­not liquidity. A statutory deficit driven by depreciation is not a signal of insolvency.¡±

Likewise, investment earnings could exaggerate both gains and losses with what were largely ¡°implied earnings¡± estimated at a single point in time. ¡°When the share market¡­is doing well it¡¯ll be quite high, and when it¡¯s not, it¡¯ll be quite low.¡±

Howard said universities¡¯ financial accounts offered only scant insights into international earnings, because there was no separate information on how much universities spent to earn this revenue ¨C or what they did with the proceeds.

A ¡°huge line item¡± classified as ¡°other expenses¡± was equally opaque. ¡°[If you want] to find out what¡¯s in there, you have to go down 60 or 70 pages into the notes for the accounts, and there¡¯s no consistency in the reporting between universities. How can you expect anyone outside of the university¡­to understand what¡¯s really happening?¡±

ÍøÆØÃÅ

¡°Other expenses¡± accounted for 28 per cent of the sector¡¯s spending, as reported in universities¡¯ 2024 annual reports. But at the institutional level it ranged from around A$46 million or 8 per cent of expenses at the Australian Catholic University to A$1.15 billion or 33 per cent of expenses at the University of Melbourne.

Howard said a line item dubbed ¡°other revenue¡± was equally vague. ¡°If I want to find out how much [money] universities are [making from] car parks ¨C which I suspect is very large ¨C I can¡¯t tell.¡±

ÍøÆØÃÅ

john.ross@timeshighereducation.com